Volvo Needs to Cut Costs by $214 Million, Profit Declines in First Half of 2019
Volvo is planning on reducing fixed costs by 2 billion Swedish kronor. That sounds like a lot, but it’s only about $214 million. While not the largest restructuring plan currently being conducted within the automotive industry, it’s a significant chunk of change for a company the size of Volvo Cars.
The manufacturer is claiming that market pressures are trimming down profits. As a subsidiary of China’s Zhejiang Geely Holding Group, much of Volvo’s business is being impacted by the trade war between the Land of Liberty and People’s Republic. While giving a listen to the automaker’s latest financial report earlier in the day, we learned Volvo operating profit dropped by about 30 percent over the first half of 2019. At least some of that can be attributed directly to its Chinese ties.
CEO Håkan Samuelsson said the carmaker was already been reviewing staff earlier in the year and expected to see about 750 job cuts. It previously said it would withhold staff bonuses after profitability declined.
Last year, the company sold more cars in the United States than it had since 2007. Meanwhile, European sales skyrocketed to 319,048 — dwarfing U.S. deliveries by a magnitude of three. And, while China enjoys sale volumes closer to the U.S., Volvo’s growth within the region is beyond staggering.
Despite record-setting sales figures, life under Geely hasn’t been as it’s cracked up to be. Having to compete against the likes of a BMW or Mercedes-Benz is tough because they’re much larger firms. It was assumed that Volvo could lean on Geely for support and, while that has happened, major tech investments and international conflicts have offset that — perhaps too much.
You have to spend cash if you’re going to keep pace with development but Volvo is smaller than most of the companies it competes with, so it isn’t easy to match their momentum. Complications surrounding the trade war have caused issues elsewhere in the business. Shortly after opening it’s first U.S. plant, Volvo canceled plans to export the S60 sedans built there to China as tariffs rose.
“There are headwinds in most car markets, and combined with tariff costs, that is obvious in our margins,” Samuelsson said. “We saw this coming a number of months ago and started additional cost actions.”
Despite posting record revenue, second-quarter operating profit fell 38 percent to $2.6 billion — a worse quarter-on-quarter drop than the first. While this isn’t supposed to impact its future lineup, the company did suggest it might delay the rollout of autonomous vehicles that were supposed to launch in 2021… how convenient. Volvo also has a deal with Chinese firm Huawei, which is still under U.S. sanctions due to national security concerns. Samuelsson said he was not worried. “We have a cooperation with Huawei, but it’s not really about technology’s access to their apps so we don’t see any influence,” he said.
Much of the cost-saving measures are to take effect immediately — resulting in 1 billion kronor in savings. The second half of the cost-cutting measures are supposed to take place at the start of 2020, with more details on what the’ll entail later this year.
[Images: Volvo]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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what happened to the other three posts? Last December, we were looking at at replaecmemt for my wife's 20 yr old Honda Oddy. We looked at all the lux CUVs. I found the Volvo mid level CUV seriously over priced compared to the competition But worse was the weird driver's seat that was bordered by a huge wall on the right hand side of the the driver' seat. It was over my right shoulder and I'm 6'1" and way over my wife's right shoulder. It took her all of thirty seconds of seat time to reject it based on the weird ergonomics. Volvo what were you thinking (or not) when you put this into production.
7 Comments and yet I only see 3, weird. For the past 30 years Volvos always charged a bit too much for their cars imo, and without their distinct looks or safety edge theres little reason to buy one. Then you have decades of reliability issues that are still ongoing, Chinese ownership not helping the publics already doubtful views. They need to make a regular, cheaper entry level car. Something without a supercharged AWD system, or would that ruin their illusion of luxury?